1. 1 Neoliberalism: origins, theory, definition Since the late 1990's activists have used the word 'neoliberalism' for global market-liberalism ('capitalism') and for free-trade policies. In this sense it is now widely used in South America. Some people use the word interchangeably with 'globalisation'. But free markets and free trade are not new, and this use of the term ignores developments in the advanced economies. The analysis here compares neoliberalism with its historical predecessors. Neoliberalism is not just economics: it is a social and moral philosophy, in some aspects qualitatively different from liberalism.

2. 2 What is Neo-Liberalism? by Elizabeth Martinez and Arnoldo García: “Neo-liberalism is a set of economic policies that have become widespread during the last 25 years or so. Although the word is rarely heard in the United States, you can clearly see the effects of neo- liberalism here as the rich grow richer and the poor grow poorer....Around the world, neo-liberalism has been imposed by powerful financial institutions like the International Monetary Fund (IMF), the World Bank and the Inter- American Development Bank....the capitalist crisis over the last 25 years, with its shrinking profit rates, inspired the corporate elite to revive economic liberalism. That's what makes it 'neo' or new.” (http://www.globalexchange.org/campaigns/econ101/neoliberalDefined.html)

3. 3 This sense of the word 'neoliberalism' is widely used in Latin America. However, neoliberalism is more a phenomenon of the rich western market democracies, than of poor regions. The IMF and the World Bank are not the right places to look, to see the essence of neoliberalism. And the WTO ideology - free trade and 'competitive advantage' - is 200 years old. There is nothing 'neo' in their liberalism.

4. 4 So what happened at Seattle and Genoa? When people hear the word 'neoliberalism, they think of the protests at Seattle and Genoa, and the associated social movements. The underlying causes of these events are related to the historical expansion of liberalism. Remember the photograph of riot police advancing over the body of Carlo Giuliani - the demonstrator shot by police at the G8 summit in Genova (Genoa). It is a classic image of state power - force used in repression. But it is also an image of the advance of the free market. There is not necessarily a contradiction between The State and The Market. It is possible for the state to suppress the market, but also to promote it. In fact, the free market emerged in Europe under the protection of the state.

5. 5 two reasons why the market needs the state. (1)The first is that the market itself needs internal regulation, in order to function. The state, in the form of the legal system, ensures contracts are enforced. In the form of the police, it prevents theft and fraud. It establishes uniform systems of weights and measures, and a uniform currency. Without these things there would be no free market, no market forces, and no resulting market society. Bill Gates disputes the US Government's authority over his business - but if there was no government at all, the poor would soon steal his wealth. The attack on the World Trade Center provided some images of this dependency - the reopening of the New York Stock Exchange by police and firefighters, for instance. (In turn, at least in the United States, the market is integrated in the national identity: the NYSE reopening was seen as an act of national defiance)

6. 6 (2) The second reason is even more simple. The free market is itself a form of social organisation: it is neither spontaneous nor endemic to humans. If no-one ever promoted or enforced it, there would be no free market on this planet. For thousands of years, there was none. The modern free market came into existence primarily because liberalism demanded its existence. This demand was a a political demand, and it was enforced through the state.

7. 7 Liberalism Liberalism as a coherent social philosophy dates from the late 18th century. At first there was no distinction between political and economic liberalism (economics was not considered a separate discipline until about 1850). Classic liberal political philosophy has continued to develop - after 1900 as a purely conservative philosophy. The basic principles of all liberal philosophy are: (1) Liberals believe that the form of society should be the outcome of processes. These processes should be interactive and involve all members of society. The market is an example, probably the best example, of what liberals mean by process. Liberals are generally hostile to any 'interference with process'. Specifically, liberals claim that the distribution of wealth as a result of the market is, in itself, just. Liberals reject the idea of redistribution of wealth as a goal in itself.

8. 8 (2) Liberals therefore reject any design or plan for society - religious, utopian, or ethical. Liberals feel that society and state should not have fixed goals, but that 'process should determine outcome'. This anti-utopianism became increasingly important in liberal philosophy, in reaction to the Communist centrally-planned economies: it anticipated the extreme deregulation-ism of later neoliberalism. (3) Liberalism is therefore inherently hostile to competing non-liberal societies - which it sees not simply as different, but as wrong. In the last 10 years, Islamic society has replaced the Communist state, as the perceived 'opposite' to a liberal society.

9. 9 (4) Nevertheless liberalism has compromised with one specific form of non-liberal ideology: nationalism, in the ethno-national form which underlies most present nation states. A political community based on common origin, history and language is not liberal, but liberals never tried to form the voluntarist, contractual, non-historical state - which liberalism would logically imply. The nation state was simply taken for granted, as the political and economic arena for liberal process. (5) Liberals define liberalism itself as 'freedom', so they rarely think consent is required for the imposition of a liberal society. In fact, most would say it can not be imposed, inherently. After the Cold War this belief has acquired a geostrategic significance: many western liberal-democrats now believe, that a war to impose a liberal-democratic society is inherently just. This belief influences interventionist policy, but as yet no war for the sole purpose of liberalisation has been fought.

10. 10 (6) Classic political liberals reject the idea that there are any external moral values: they say that there are only opinions. They feel that these opinions should be 'expressed' in public, and that in some way this 'market of opinions' will favour the truth. (The idea that truth can be revealed by discourse is much older than liberalism). (7) The liberal rejection of external moral values is formally expressed in the liberal idea of human rights: both good and evil humans have equal rights, which apply equally when they facilitate good or evil actions. Classic liberal philosophy advocated 'liberty' as a value, even if they did not call it a value. In effect it places liberty as a value above good (and evil).

11. 11 (8) Liberals believe in formal equality among participants in a liberal society, but almost all liberals also believe in inequality of talent. Many liberals were therefore sympathetic to biological theories of inequality. (Theories of hereditary racial differences in intelligence are now popular among US neoliberals). Liberalism is a universal ideology, and in principle liberals seek to apply it to the entire planet, and the entire human population. Most liberals have supported the expansion of liberal society, although in the 19th century that meant among the 'civilised nations'. For a long time the free market was considered the only cross-cultural and 'exportable' element of liberalism. Only recently have liberals advocated, that African and Asian societies should become 100% liberal-democratic societies. 'Liberal missionaries' such as George Soros were unknown or marginal in the 19th-century.

12. 12 Market liberalism The free market is not simply 'exchange' or 'trade'. Two people who exchange products can not form a free market in the liberal sense, even if their transactions are monetarised. The element of competition is missing in this two-person society. A minimal liberal free market needs at least three parties, with two of them in competition - for instance, two competing sellers and one buyer. The resultant pressure on the two sellers to lower prices, is the simplest type of 'market force'. Such a force comes into existence without any conscious action on the part of the three parties. In modern markets there are millions of parties, and complex market forces. Market-liberals value this characteristic of the market. Their belief in the moral necessity of market forces in the economy, is probably the first defining feature of market liberalism. The second is the belief in entrepreneurs themselves, as a good and necessary social group.

13. 13 To summarise: (1) For all liberals, interactive process legitimises outcome: in market liberalism, the market is the primary process, and market transactions are the interaction. (2) Market liberals believe that economic transactions should take place in a framework which maximises the effect of each transaction on every other transaction. (That is an abstract definition of the free market, but it makes the later transition from liberalism to neoliberalism easier to understand).

14. 14 (3) Liberals see the market as good, and often as semi-sacred. They want the market to be as large as possible, involving all of society. In modern liberal-democratic states almost all adults participate in the market. A private club in a Communist state, where members can hold a closed free market, would satisfy no liberal. (4) Liberals are hostile to economic self-sufficiency - so strongly, that they believed in war to 'open up markets'. The most famous example is the Opium War, when Britain forced the Chinese Empire to allow the import of opium. This liberal belief in market expansionism has revived after the end of the Cold War.

15. 15 (5) Market liberals are hostile to trade barriers: "free trade" is a classic slogan of market liberalism. That meant traditionally, the free flow of goods and capital: neoliberalism later developed a more diffuse version, where 'flow' and 'interaction' are treated as quasi-ethical values. (6) Market liberals believe that important aspects of society should be determined by the market, certainly the distribution of income and wealth. Neoliberalism later extended this belief, claiming that all social life should be determined by the market.

16. 16 (7) All market liberals are hostile to interference in the market, by church, state or others - although since the 19th century only the state has sufficient power to interfere. Market liberals are clearly anti-utopian, in the sense of opposing economic planning, especially centralised state control of the entire economy. They believe that the market produces the best 'design for society', and that is is wrong to substitute any other design. (8) However, market liberalism is itself a utopia, despite its anti- utopianism. In the 'ideal world' of market liberalism, no goods or services exist which are not the product of market forces, but all goods or services which are market-responsive do exist. This is in itself a utopian project, implying a total structuring of society. Neoliberalism goes even further - extending the market principle beyond the production of goods and services.

17. 17 (9) The social institution of the entrepreneur is central to market liberalism. An entrepreneur is a person whose profession is, to respond to market forces. In the 19th century most entrepreneurs were still private individuals, later the business firm took over this function. The enterprise/firm is a permanent organisation, structured to respond to market forces. An entrepreneur is not a farmer, or a manufacturer, or a consultant: in theory an entrepreneur changes activities in accordance with the market. In reality most entrepreneurs retained a specialisation for some specific products or services: but neoliberalism now demands, that the theoretical flexibility should become standard practice

18. 18 (10) Without the entrepreneur there is no free market, therefore market liberals demand a privileged social status for the entrepreneur. The early liberal theorists were hostile to the urban guild economy of mediaeval Europe: they saw it, in effect, as a conspiracy not to compete. In their historical vision, the entrepreneur rescued Europe from the poverty of the Middle Ages. (This vision was shared by Karl Marx, who admired the cultural dynamism of the free market). Not just mediaeval Europe, but all societies without an entrepreneurial caste, were seen as failures.

19. 19 A central but rarely explicit political demand of market liberals is therefore, that entrepreneurs should have control of the economy. This has not only been accepted, but has become so incorporated into the culture of western liberal-democratic societies, that few people ever think about it. But it would not be any less logical, to hand the economy to engineers, or priests - or not to privilege any one group. The choice depends on underlying values, and liberals value the entrepreneur. This value preference of liberals, and its widespread acceptance, has created what in the US is called 'the business community'. That is a real and identifiable social elite - with specific cultural preferences, specific clothing, and often a specific form of language (sociolect). It does in fact control the economy, in liberal-democratic states. Although this was probably not foreseen by early liberals, market liberalism has become an ideology in support of this elite. Their culture, attitudes, and ethics have greatly influenced neoliberalism.

20. 20 Neoliberalism If Adam Smith returned and saw the more extreme aspects of neoliberalism, he would probably find them bizarre. Nevertheless, they derive from the ideas of early liberalism. The belief in the market, in market forces, has separated from the factual production of goods and services. It has become an end in itself, and this is one reason to speak of neoliberalism and not of liberalism.

21. 21 A general characteristic of neoliberalism is the desire to intensify and expand the market, by increasing the number, frequency, repeatability, and formalisation of transactions. The ultimate (unreachable) goal of neoliberalism is a universe where every action of every being is a market transaction, conducted in competition with every other being and influencing every other transaction, with transactions occurring in an infinitely short time, and repeated at an infinitely fast rate. It is no surprise that extreme forms of neoliberalism, and especially cyberliberalism, overlap with semi-religious beliefs in the interconnectedness of the cosmos.

22. 22 Some specific aspects of neoliberalism are: (1) A new expansion in time and space of the market: although there has been a global-scale market economy for centuries, neoliberals find new areas of marketisation. This illustrates how neoliberalism differs from classic market liberalism. Adam Smith would not have believed that a free market was less of a free market, because the shops are closed in the middle of the night: expansion of trading hours is a typically neoliberal policy. For neoliberals a 23-hours economy is already unjustifiable: nothing less than 24-hours economy will satisfy them. They constantly expand the market at its margins.

23. 23 (2) The emphasis on property, in classic and market liberalism, has been replaced by an emphasis on contract. In the time of Adam Smith, property conferred status in itself: he would find it strange that entrepreneurs sometimes own no fixed assets, and lease the means of production. (3) Contract maximalisation is typically neoliberal: the privatisation of the British railway network, formerly run by one state-owned company, led to 30 000 new contracts. Most of these were probably generated by splitting services, which could have been included in block contracts. (A fanatic neoliberal would prefer not to buy a cup of coffee, but negotiate separately for each microlitre).

24. 24 (4) The contract period is reduced, especially on the labour market, and so the frequency of contract is increased. A service contract, for instance for office cleaning, might be reduced from a one-year to a three-month contract, then to a one-month contract. Contracts of employment are shorter and shorter, in effect forcing the employee to re-apply for the job. This flexibilisation means a qualitatively different working life: many more job applications, spread throughout the working life. This was historically the norm in agriculture - day labour - but long-term labour contracts became standard after industrialisation.

25. 25 (5) Market forces are also intensified by intensifying assessment, a development especially visible on the labour market. Even within a contract period, an employee will be subject to continuous assessment. The use of specialised software in call centres has provided some extreme examples: the time employees spend at the toilet is measured in seconds: this information is used to pressure the employee to spend less time away from the terminal. Firms with contracts are also increasingly subject to continuous assessment procedures, made possible by information technology. For instance, courier services use tracking software and GPS technology, to allow customers to locate their packages in transit. This is a typical example of the new hyper-provision of business information, in neoliberal economies.

26. 26 (6) New transaction-intensive markets are created on the model of the stock exchanges - electricity exchanges, telephone-minute exchanges. Typical for neoliberalism: there is no relationship between the growth in the number of transactions, and the underlying production. (7) New forms of auction are another method of creating transaction-intensive markets. Radio frequency auctions, such as those for UMTS frequencies, are an example. They replaced previous methods of allocation, especially licensing - a traditional method of allocating access to scarce goods with no clear private owner. The complex forms of frequency spectrum auctions have only been developed in the last few years. Neoliberals now see them as the only valid method of making such allocations: they dismiss all other methods as 'beauty contests'.

27. 27 (9) Artificial transactions are created, to increase the number and intensity of transactions. Large-scale derivative trading is a typically neoliberal phenomenon, although financial derivatives have existed for centuries. It is possible to trade options on shares: but it is also possible to create options on these options. This accumulation of transaction on transaction, is characteristic of neoliberalism. New derivatives are created, to be traded on the new exchanges - such as 'electricity futures'. There is no limit to this expansion, except computer power, which grows rapidly anyway. (10) Automated trading, and the creation of virtual market-like structures, are neoliberal in the sense that they are an intensification of "transaction for transaction's sake". However, a world in which all entrepreneurial activity was automated would not be neoliberal, or liberal.

28. 28 (11) This expansion of interactivity means that neoliberal societies are network societies, rather than the 'open societies', of classic liberals. Formal equality and 'access' are not enough for neoliberals: they must be used to create links to other members of the society. This attitude has been accurately labelled 'connectionist'. (12) Because of contract expansionism, transaction costs play an increasing role in the neoliberal economy. All those 30 000 contracts at British Rail had to be drafted by lawyers, all the assessments have to be done by assessors. There is always some cost of competition, which increases as the intensity of transactions increases. Neoliberalism has reached the point where these costs threaten to overwhelm the existing economy, destroying any economic gains from technological change.

29. 29 (13) The growth of the financial services sector is related to these neoliberal characteristics, rather than to any inherent shift to service economies. The entire sector is itself a transaction cost: it was almost non-existent in the centrally planned economies. In turn, it has created a huge demand for office space in the world's financial centres. The expansion of the sector and its office employment are in direct contradiction of propaganda about 'more efficiency and less bureaucracy' in the free market.

30. 30 (14) The speed of trading is increased. Online market data is expensive, yet it is now available free with a 15-minute delay. The markets move so fast, that the data is worthless after 15 minutes: the companies can then give it away, as a form of advertising. Day-traders buy and sell shares in minutes. Automated trading programmes, where the computer is linked direct to the stock exchange system, do it in seconds, or less. It is this increased speed which has led to the huge nominal trading volumes on the international currency markets, many times the Gross World Product on a yearly basis.

31. 31 (15) Certain functions arise which only exist inside a neoliberal free market - 'derivative professions'. A good example is the profession of psychological-test coach. The intensity of assessment has increased, and firms now regularly use psychological tests to select candidates, even for intermediate level jobs. So ambitious candidates pay for training, in how to pass these psychological tests. Competition in the neoliberal labour market itself creates the market for this service.

32. 32 (16) The creation of sub-markets, typically within an enterprise. Sub- contracting is itself an old market practice, but was usually outside the firm. It is now standard practice for large companies to create competition among their constituent units. This practice is also capable of quasi-infinite extension, and its promotion is characteristic of neoliberalism. A few companies even required each individual employee to register as a business, and to compete with each other at the place of work. A large company can form literally millions of holdings, alliances and joint ventures, using such one-person firms as building blocks.

33. 33 (17) Supplier maximalisation: this extends the range of enterprises that compete for each contract. The ideal would be that every enterprise competes for every contract offered, maximising competition and market forces. In the case of the labour market, the neoliberal ideal is the absolutely flexible and employable employee, who can (and does apply) for every vacancy. In reality, an individual can not perform every kind of work - but there is a real development towards non-specialised enterprises, especially in the producer services sector. In neoliberalism, instead of the traditional 'steel tycoon' or 'newspaper baron' there are enterprises which "globally link people and knowledge, and cultures" or "advise and implement solutions to management issues". (In fact these are quotes from the accountants Price Waterhouse, but you can not guess this from the descriptions).

34. 34 Neoliberalism is not simply an economic structure, it is a philosophy. This is most visible in attitudes to society, the individual and employment. Neo-liberals tend to see the world in term of market metaphors. Referring to nations as companies is typically neoliberal, rather than liberal. In such a view Deutschland GmbH competes with Great Britain Ltd, BV Nederland, and USA Inc. However, when this is a view of nation states, it is as much a form of neo-nationalism as neoliberalism. It also looks back to the pre-liberal economic theory - mercantilism - which saw the countries of Europe as competing units. The mercantilists treated those kingdoms as large-scale versions of a private household, rather than as firms. Nevertheless, their view of world trade as a competition between nation-sized units, would be acceptable to modern neoliberals.